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The Hidden Cost of Underinvesting

15 September 2015 in Investing Insights

Got a lot of cash sitting around? Like the kind you end up with after you pull out of the market because you’re scared?

Market volatility can affect the psyche. Reining in your risk tolerance based on experience can be a good thing. So is proceeding with caution. But letting fear dictate your entire investment strategy might not give you enough room for upside later on.

Abandoning one’s investments in a panic can have an opportunity cost.

Let’s say for example that you stay entirely uninvested, sitting on the sidelines in cash earning no interest. You might miss out on about 2 percent annually of opportunities to keep up with the average annual inflation rate over the past century.1 That might not sound like much in one year, but compounded over time, it adds up.

Even that loss is modest compared to other missed opportunities—like the one many U.S. households did not fully take advantage of: the rebound from the end of the last credit crisis at the end of 2008.2 During that time, the NASDAQ gained over 200 percent.3

Beware of Market Timing

Of course, analyzing past performance is much easier than any attempt to anticipate what the market might do in the future.

Ultimately, it remains to be seen whether the buying time is now, but often the first signs of a trend reversal don’t become evident until well after the fact.4

It may become easier to spot a trend reversal when you look at the market through a different lens.

That’s the logic behind thematic investing—Motif Investing’s specialty.

Thematic investing identifies opportunities related to changes, often transcending traditional definitions of sectors and asset classes.

For instance, a reversal in the overall trend in the market might start within emerging industries or developing markets.

You might spot the first sign of a trend reversal among financial services companies, precious metals, or energy companies—either as a whole or even a subset of any of these groups.

Perhaps you might want to focus on financial services institutions that have historically demonstrated an ability to appreciate in value from rising interest rates—well, there are investments for that at Motif.

There are also motifs consisting of fixed income exchange traded funds.

Other motifs contain stocks and exchange traded funds reflecting themes in real estate, international markets, social causes, political trends, current events, asset allocation strategies, commodities, and more.

Of course, you can see more of the functionality once you begin trading. Ready to get started with Motif Investing? Sign up for a free account today.

The exchange traded funds prospectus contains its investment objectives, risks, charges, expenses and other important information you should read and consider carefully prior to making an investment decision. Please review the current prospectus, available by phone at 1-855-586-6843, or by writing to Motif Investing, Inc., P.O. Box 3548, Rancho Cordova, CA 95741.

Investing in securities involves risks you should be aware of prior to making an investment decision, including the possible loss of principal. An investment in individual stocks, or a collection of stocks focused on a particular theme or idea, such as a motif, may be subject to increased risk of price fluctuation over more diversified holdings due to adverse developments that can affect a particular industry or sector. ETFs have unique features that you should be aware of, which can include distribution of any gains, risks related to securities within the portfolio, and tax consequences. Motif makes no representation regarding the suitability of a particular investment or investment strategy. You are responsible for all investment decisions you make including understanding the risks involved with your investment strategy.

1 “Historical Inflation Rates: 1914-2015,” USInflationCalculator.com, 2015.
2 “An Under-Invested America: Is Conservative the New Norm,” NovelInvestor.com, February, 26, 2015.
3 This performance data is based on Yahoo Finance’s chart showing the returns of the NASDAQ from January 1, 2009 through September 10, 2015.
4 Elmerraji, Jonas, “How to Spot a Reversal: Technical Analysis 101,” TheStreet.com, March 9, 2015.